Auto Sales in June Provided Bright Spot for U.S. Economy

The U.S. auto industry shrugged off a
weakening labor market and waning consumer confidence in June,
surpassing analysts’ estimates and completing the best first
half for vehicle sales since 2008.

General Motors Co. (GM), Ford Motor Co. and Chrysler Group LLC
reported better than predicted gains from the year-earlier
period in which they dominated the U.S. market because of
vehicle shortages at Toyota (7203) Motor Corp. and Honda Motor Co.
caused by Japan’s tsunami. The 22 percent June increase for the
industry gives reason for optimism after analysts under-estimated demand following lower than projected sales in May.

Light-vehicle sales accelerated to 14.1 million seasonally
adjusted annualized rate, according to researcher Autodata
Corp., beating the 13.8 million light-vehicle average of
15 analyst estimates surveyed by Bloomberg. The world’s second-largest auto market remains on pace for the best annual sales
total since 2007.

“The auto market continues to be the one bright spot in an
otherwise complicated and generally negative marketplace,”
Jesse Toprak, an analyst at researcher TrueCar.com, said in a
telephone interview. “The industry was able to carry a more
than 14 million selling rate despite the roller-coaster ride we
experienced in the economy and financial markets last month.”

Along with holiday marketing and discounted sales to fleet
customers, U.S. automakers had success with some car models.
Chevrolet Malibu sales rose 32 percent from the previous June,
while Ford Fusion sales increase 17 percent, putting both
midsize sedans among the industry’s top 10 models for the month.

The U.S. auto industry has continued a steady recovery
since 2009 when GM and Chrysler restructured in government-backed bankruptcies. The industry is adding back workers to meet
demand, with light-vehicle sales this year on track to reach
14.3 million, the average of 16 analysts’ estimates, a 38
percent gain from 2009’s 10.4 million.

It would be the industry’s third year of at least 10
percent sales increases, which hasn’t happened since 1971 to
1973.

‘Historic Territory’

“Autos often are the first into the tank and the first
out,” Kristin Dziczek, director of the labor and industry group
for the Center for Automotive Research in Ann Arbor, Michigan,
said yesterday in a telephone interview. The industry is
“really dragging along rest of the economy, kicking and
screaming.”

In May, the U.S. auto-sales rate dipped below 14 million
for the first time this year, leading most analysts to predict
June sales would remain sluggish. Three of 15 analysts surveyed
by Bloomberg projected a 14 million pace; the rest were lower.

Confidence among U.S. consumers dropped for a fourth month
to 62 for June, the lowest since January, the Conference Board’s
index showed on June 26. Employers added 69,000 workers in May,
the fewest in a year, and the jobless rate rose to 8.2 percent.

Cautious Estimates

“A lot of analysts -- ourselves included -- were cautious
going into June with the unemployment rate inching up, consumer
confidence dropping and the volatility going on in Europe,”
Alec Gutierrez, an analyst at Kelley Blue Book in Irvine,
California, said yesterday in a telephone interview. “It’s just
a testament to the strength of consumer demand for new vehicles
despite all the negative news out there.”

Early marketing campaigns and promotions tied to today’s
U.S. Independence Day holiday helped boost sales in the last
week of June, said Ken Czubay, Ford’s (F) U.S. sales chief.

“We definitely saw an improvement in the last seven,
eight, nine days,” Czubay said yesterday on a conference call.
“It’s always been a good time to buy around the Fourth of July.
I think ourselves and our competitors came out, causing a good
stir in the marketplace.” Incentive spending was down slightly
from May, he said, adding that new models helped attract buyers.

Ford’s sales of the Escape sport-utility vehicle climbed 28
percent to 28,500. Deliveries of the Fusion sedan, which is
being redesigned later this year, rose 17 percent to 24,433, the
Dearborn, Michigan-based company said yesterday in a statement.

Consumers ‘Enticed’

“It’s clear that consumers can be enticed with special
events and deals,” Jeremy Anwyl, vice chairman of Edmunds.com,
said in a telephone interview. Consumer traffic on Edmunds’s
website and transactions tracked by the industry researcher
“really turned up” after June 20, he said.

Chrysler, the automaker controlled by Fiat SpA (F), set records
for the Fiat 500 small car and Jeep Wrangler sport-utility
vehicle in June. Sales of the 500 more than doubled to 4,004 and
sales of the Wrangler surged 28 percent to 14,461, according to
a statement from the company based in Auburn Hills, Michigan.

The U.S. auto sales rate slowed to 13.8 million in May,
missing estimates for a 14.4 million pace. Analysts at Citigroup
Inc. and Deutsche Bank AG both lowered their 2013 U.S. sales
estimates in reports after the May’s results by 500,000 units.

Economic Disconnect

“There’s a little bit of disconnect between what we’re
seeing in the economy and what we’re seeing in the auto
industry,” Rebecca Lindland, an analyst at IHS Automotive, said
yesterday in a telephone interview. “For the average consumer
in middle America, they don’t really care what the euro is
doing. If they need a car, they’re not thinking whether Greece
is going to exit the euro zone from their Chevy dealership.”

Toyota, Asia’s largest automaker, increased sales 29
percent this year through June and boosted its market share 1.6
percentage points to 14.4 percent, trailing only GM and Ford.
The pace of sales is “mildly ahead” of the Toyota City, Japan-based company’s target of 1.9 million Toyota, Lexus and Scion
vehicles, Bob Carter group vice president of U.S. sales, said in
a conference call.

Honda’s sales of its namesake brand and Acura vehicles rose
15 percent in the first half to keep its market share at 9.6
percent. The Tokyo-based carmaker’s Civic ranks as the top-selling U.S. small car and the company’s compact CR-V is the
best-selling sport-utility vehicle this year.

Fleet Sales

GM’s sales to fleet customers, such as governments and
rental-car companies, rose 36 percent last month, making up 32
percent of the company’s sales. Ford said its fleet sales
accounted for 35 percent of its deliveries, down from 37 percent
a year earlier.

“The retail numbers, even though better than last year,
were not as stellar as the total numbers showed,” TrueCar’s
Toprak said yesterday in a telephone interview.

GM’s inventory of its full-size pickups, which will be
refreshed next year, climbed to 238,194 at the end of June, a
135 days supply, up from 116 days at the end of May, according
to the company’s statement.

“They’re likely going to have a relatively high days
supply of trucks moving forward and they’re already placing some
pretty aggressive cash incentives on the hood,” Kelley Blue
Book’s Gutierrez said. “It’s going to eat into their profit
margins, but if you have to place a $3,000 or $5,000 incentive
in their portfolio, you want it to be on full-size pickups,
because those have the highest margin overall.”

GM rose 5.6 percent, the biggest gain since Feb. 16, to
$20.67 at the close of trading yesterday. Ford advanced 2.2
percent to $9.60. U.S. markets are closed today for the
Independence Day holiday.

Hyundai, Kia

South Korean automakers Hyundai Motor Co. (005380) and Kia Motors
Corp. (000270) combined to sell 10 percent more vehicles in June than a
year earlier, exceeding the 9.8 percent increase that was the
average of six analysts’ estimates. Deliveries of Hyundai’s
Accent small car gained 57 percent to 5,660. Kia sold 13,393
Optima sedans, an 89 percent increase.

Volkswagen AG (VOW), on pace to exceed its target for selling
more than 500,000 vehicles in the U.S. this year, increased
combined sales of its Volkswagen and Audi brand vehicles by 32
percent in June, beating the 28 percent gain that was the
average estimate of four analysts. The company delivered 10,252
Passat and 2,914 Beetle cars after registering just two sales
for each of the models a year earlier.

Labor Department figures this week may show employers
increased payrolls by 90,000 workers last month, the median
forecast of 59 economists surveyed by Bloomberg News, completing
the weakest quarter for employment in two years.

Economic Figures

“Economic fundamentals have remained on the soft side as
compared to the first quarter,” Ellen Hughes-Cromwick, Ford’s
chief economist, said yesterday on the company’s conference
call. “Job growth has really been tepid.”

Demand for new autos may be protected by falling gasoline
prices and consumer need to replace their older vehicles. The
national price for regular unleaded gasoline averaged $3.33 a
gallon as of July 2, according to AAA, the largest U.S. motoring
group. The average age of vehicles in operation was 11 years as
of March 31, researcher Experian Automotive said last month.

“There is a lot of conflicting economic data out there --
consumer sentiment somewhat negative, jobs somewhat negative --
however we are seeing some decent results in housing, fuel
prices are down and the availability of consumer credit is
positive,” Kurt McNeil, U.S. vice president of sales
operations, said yesterday on GM’s conference call. “We still
see headwinds but at the end of the day we’re calling for
moderate, gradual economic growth.”